How to Build and Maintain Good Credit

FREE CREDIT REPORT

CREDIT CHECK

How to Build

and Maintain

Good Credit

Most people need credit for things like renting an

apartment or opening a cell phone account – but

to get that cash, you need to show the lender,

bank or credit card company you can pay it back.

These pointers can help put you on the right path.

What exactly is credit?

To put it simply, credit is borrowed money. A lender,

credit card issuer, bank or grantor gives you a set

amount of cash with the expectation that you’ll repay it,

using agreed-upon terms. This can include repayment

dates, the minimum you must pay every month and the

additional interest you can be charged if you don’t pay

the full balance each month.

Establishing a credit history can set you on a strong

financial path and save you some serious cash. But not

all borrowing alternatives are equal. With a payday loan,

for example, you can score immediate funds to float you

over to your next paycheck, but payday lenders typically

don’t report your payment history to credit bureaus.

And that’s not the only way they can cost you. The fees

associated with payday loans range from $10 to $30 for

each $100 borrowed and must be paid in two weeks’

time. That means a typical two-week payday loan with

a $15 per $100 fee is equal to an annual percentage rate

(APR) of nearly 400%. Credit cards, meanwhile, have

APRs ranging from roughly 12 to 30%, and using a credit

card responsibly can improve your credit score over time.

Why does your

credit matter?

While paying with cash, checks or a debit card

can be good ways to keep track of expenditures,

establishing a credit history is important for

four key reasons:

If you need to secure financing for larger

purchases such as furniture, cars or even a new

home, having a good credit score can make it

easier to get approved with a higher limit and

better interest rates.

Good credit might be necessary for setting up

utilities at your home. Since technically these

companies are lending you services in anticipation

that you’ll pay for them later, they want to know

you’re good for it.

Similarly, an insurance company may look at your

credit score to calculate what they will charge you

for home, car or renter’s insurance.

Having a bad credit score or no credit history can

affect your ability to rent an apartment or even

get a job. (Some employers will check your credit

rating during the hiring process.)

Examples of credit

House Mortgage Car Loan Student Loan

Credit Cards Personal Loan Home Equity Loans

How do you

establish credit in

the first place?

Obtaining a credit card — perhaps a student credit card

or one marketed toward people with fair or average

credit — is a great first step in starting a credit history.

It’s likely you won’t get the best possible interest rate

when you apply for the first time, but paying off the full

balance each month can help raise your credit score and

set you up for better terms in the future.

When selecting your first card, consider the annual

percentage rate (APR) — the interest rate you’ll pay if

you carry a balance and any fees — plus potential perks,

like earning cash back on gas or groceries.

You’ll also want to keep tabs on your credit utilization

ratio, or the amount you owe in comparison with your

credit limit. Experts generally recommend keeping that

ratio under 30% because if it creeps too high, your credit

score can drop. So, for a credit card with a $1,000 limit,

you’d want to maintain a balance of less than $300.

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What’s a credit score?

It’s a number used by potential lenders and creditors

as one factor in determining whether to offer you

credit. This number is calculated using your financial

data (your total level of debt, repayment history and

more) that’s collected by three major credit reporting

bureaus — Experian, Equifax and TransUnion. Each

bureau has a slightly different system, though the

FICO® model is the one preferred by most lenders and

ranges from 300 to 850.

All these factors

can affect your

credit score

Payment history, i.e. making your debt

payments on time each month

Amount of credit you use as compared

to the total credit available

Length of credit history

Number of credit types. (Proving an

ability to manage multiple debts can

boost your score.)

How often you request

additional credit

POOR

How do you keep tabs

on your credit?

It literally pays to check your credit report. Not only

can you track your progress, but you can also catch

inaccuracies or potential identity theft before it

negatively impacts your financial well-being. And since

you’re legally entitled to receive a yearly credit report

from each of the three major credit bureaus, you can

do a free check-in every four months with a visit to

AnnualCreditReport.com.

Since the reports don’t contain your actual score, you

can track that separately. Most financial institutions will

provide customers access to their credit scores, or you

can use a free credit scoring site.

What if you have bad credit or no credit history?

Have a relative or friend add

you as an authorized user.

As the name suggests, an authorized user is someone

who’s able to use another person’s credit card and

benefit from the cardholder’s activity. You need to

choose wisely, though. If they rack up debt, you’ll take

the hit as well.

Opt for a secured credit card.

It can be easier to get approved for these cards, which

require a security deposit as collateral. They function

like a debit card in that the money you put down,

typically $200 to $500, is equal to your available credit.

Once you’ve proven the ability to make consistent, on-

time payments you may be upgraded to a standard card.

Get acknowledged for paying

other bills.

Many financial institutions offer tools that can boost

your credit score simply by making other monthly

payments. For example,

you could get recognition

by paying for your cell

phone and streaming

services on time.

Take out a credit-builder loan.

With a traditional loan, you typically receive the money

upfront and pay it back over time. A credit-builder loan

has the same fixed monthly payments, however, you’re

unable to access the cash until it’s fully repaid. Because

the risk for lenders is low, it’s relatively easy to qualify.

Your payments are reported to credit bureaus, allowing

you to establish a successful history.

PAYMENT

SUCCESSFUL

Apply for a starter credit card or have a

trusted source add you as a user.

Pay your bills on time, every time.

Keep older credit cards active to

lengthen your credit history.

Make late bill payments.

Use 30% or more of your credit limit.

Apply for new credit too frequently in

a short period of time.

Credit dos and don’ts

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or

financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi

product or service. For advice about your specific circumstances, you should consult a qualified professional.